Effect of Firm Characteristics on the Financial Performance of Commercial Banks in Kenya

Joan Jebet ,Joshua Matanda Wepukhulu

doi:10.7176/rjfa/11-22-06

Abstract

The study aimed to examine the effect of firm characteristics on the financial performance of commercial banks in Kenya by examining the effect of capital adequacy liquidity, credit risk and bank size on the financial performance. A descriptive research design was used in the study. The study focused on the 36 commercial banks which had complete dataset for the period 2013 – 2018. The study used secondary data acquired from the published yearly financial documents gathered from the Central Bank of Kenya. Analysis of the data was carried out using the STATA software. The relationship between independent and dependent variables was analyzed using descriptive statistics and panel data regression analysis while the strength between the variables was determined using correlation. The financial performance was measured using Return on Equity. Results on the regression models indicated that capital adequacy and bank size had a positive effect on the return on equity of the commercial banks in Kenya. Liquidity and credit risk were found to have a negative effect on the return on equity of the commercial banks in Kenya. Keywords: Capital Adequacy, Credit risk, Liquidity, Bank Size, Return on Equity DOI: 10.7176/RJFA/11-22-06 Publication date: November 30 th 2020

Highlights

1.1 Background of the Study Globally, banking watchdogs have concentrated on invigorating the benefit of capital and liquidity standards of the banking institutions for the past decade
The adoption of the descriptive research design is informed by its ability to explore and in-depth description on how firm characteristics regarding liquidity, capital adequacy, bank size and credit risk affect the return on equity of the commercial banks
5.0 Summary conclusion and recommendations 5.1 Conclusion The study concludes that an increase in capital adequacy levels above the minimum requirement has a positive effect on the increases the banks return on equity

Summary

Introduction

1.1 Background of the Study Globally, banking watchdogs have concentrated on invigorating the benefit of capital and liquidity standards of the banking institutions for the past decade. Those endeavors have prompted a robust obligation addressing the disproportion and intricacy of the worldwide capital system for universally dynamic banking institutions, with administrative union activities, for example, Basel III focuses on resolution administrations formulating the tone for a progressively unswerving banking rulebook from a substantial number of jurisdictions. A similar report on banking institutions in Europe found out that there were sizeable profits and credit costs diminution after the enactment of new guidelines as compared to the 2007 peaks (Chiarella, 2011). The CBN became the overall regulatory body of the banking sector in 1959, and it is when the sector began to change for the better

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Conclusion